If you’re struggling with serious debt and looking at your options, you’ve likely come across two formal debt solutions that can help you deal with unmanageable debt: Individual Voluntary Arrangements (IVAs) and bankruptcy. Both are formal insolvency options, but they work in very different ways and suit very different circumstances.
The right solution for dealing with your debts will depend on your income, your assets, and your overall financial situation. There’s no single answer that works for everyone – what matters is finding the option that fits your individual circumstances.
IVA vs Bankruptcy: At a Glance
| IVA | Bankruptcy | |
| Minimum debt | £7,000 (typically) | No minimum |
| Maximum debt | No limit | No limit |
| Duration | 5–6 years | 12 months, although can be longer if you don’t co-operate with the Official Receiver |
| Monthly payments | Yes, based on disposable income | Only if you can afford them based on your disposable income (3 years) |
| Setup cost | Taken from monthly payments | £680 application fee |
| Legal protection | Yes – legally binding | Yes – legally binding |
| Assets | Protected (subject to creditor approval) | May be used to pay creditors, subject to certain exempltions |
| Homeowners | Excluded in an IVA, however, may have to pay for a further 12 months, and be subject to creditor approval | Property may be sold to pay creditors |
| Credit impact | 6 years on credit file | 6 years on credit file |
| Insolvency register | Listed for duration of IVA | Listed until discharged |
| Debt written off | Remaining balance after final payment* | All remaining, including debts on discharge |
What is an Individual Voluntary Arrangement (IVA)?
An IVA is a formal agreement between you and your creditors to repay what you can afford over a fixed period, usually five or six years. To get an IVA, you’ll need to work with a licensed Insolvency Practitioner, who calculates your monthly repayments based on your income once your essential living costs have been taken into account.
Once at least 75% of your creditors (by debt value) approve the IVA proposal, you make payments to your creditors through a single monthly payment that gets divided between them. Interest and charges freeze on all unsecured debts included in the arrangement, and creditors can’t chase you for payment or take legal action against you. At the end of the term, any remaining debt will be written off*.
To qualify for an IVA, you typically need to:
- Owe at least £7,000 in most cases
- Have a regular income from employment, self-employment, pension, or other sources
- Have disposable income after covering your outgoings
- Owe money to at least two creditors
Because an IVA is legally binding, you’re protected from creditor action, including visits from debt collectors or bailiffs, but you also need to stick to the agreed payment terms. Managing your arrangement well throughout the term is important – missing payments can put the arrangement at risk.
Your IVA will appear on the Individual Insolvency Register for the duration of the arrangement and on your credit report for six years from the start date.
What is Bankruptcy?
Bankruptcy is a legal process for people who cannot afford to repay their debts.
Filing for bankruptcy involves:
- Completing an online application through the government’s insolvency service
- Paying a £680 application fee
The fee can be paid in instalments – however, it must be paid in full before the application can be made.
When you apply for bankruptcy, and it is approved, an Official Receiver or Trustee takes control of your financial affairs and will look to use your assets to pay back what you owe.
Bankruptcy usually lasts 12 months, after which you are discharged, and any remaining debt is written off. However, if you have disposable income after your outgoings, you may be required to contribute towards your debts for up to three years through an Income Payments Agreement (IPA).
During bankruptcy, creditors cannot take further action against you. Some assets are protected, such as basic household items and tools you need for work, but assets of value, including property and vehicles, may be used to pay back what you owe your creditors.
Like an IVA, details of your bankruptcy are added to the Individual Insolvency Register and recorded on your credit file for six years. Bankruptcy can also affect your employment, particularly in finance, law, or roles where you hold a position of financial responsibility, so it’s worth checking your employment contract before applying.
The Difference Between an IVA and Bankruptcy
Duration and Payments
Bankruptcy orders are much shorter than an IVA. You’ll typically be discharged within 12 months, whereas an IVA runs for five to six years. However, if you have disposable income during bankruptcy, you could be required to contribute towards your debts for up to three years. With an IVA, your payment is fixed from the start based on what you can afford to repay your debts each month.
Creditor Approval
An IVA requires 75% of your creditors by debt value to vote in favour of your proposal before it can proceed. Going bankrupt doesn’t require creditor approval. Once your application is accepted, the process begins regardless of what your creditors think.
Impact on Credit
Both an IVA and bankruptcy appear on your credit file for six years from the date they begin and are listed on the Individual Insolvency Register. Neither is better than the other from a credit perspective. Both will make it harder to get credit during that period.
How will an IVA or bankruptcy affect my home?
If you rent your home, neither an IVA nor bankruptcy should force you to move. Some private tenancy agreements do include clauses around insolvency, so it’s worth checking your contract.
If you own your home in an IVA, you won’t be forced to sell. If your interest in the property is more than £10,000, the IVA will last for 6 years rather than 5 years.
In bankruptcy, your property forms part of your estate. The Trustee will look to realise your interest in it, usually by applying for a court order for sale, with any money raised sold for the benefit of creditors. If the property is in negative equity, the Trustee may not pursue a sale. In some cases, a third party can purchase your share of the equity in the property to allow you to remain in your home.
Will an IVA or bankruptcy affect my job?
Both options can affect your employment, though the risk is greater with bankruptcy.
If you are a director of a company, bankruptcy will disqualify you from acting in that role, without specific approval from the court.
In an IVA, you are able to act as a Director; however, depending on your Articles of Association, you may need to file a new appointment with Companies House once the IVA is approved. Similarly, being a company director can affect your eligibility for certain debt solutions, so it’s worth getting specialist advice if this applies to you.
If you work in finance, law, or hold a senior position with financial responsibilities, bankruptcy may bar you from continuing in that role.
An IVA is less likely to cause issues, but some employment contracts and professional memberships do include insolvency clauses. It’s always worth checking your contract or speaking to your professional body before proceeding with either option.
IVA vs Bankruptcy: Pros and Cons
| IVA | Bankruptcy | |
| Pros |
|
|
| Cons |
|
|
Choosing Between an IVA or Bankruptcy: Which is Right for Me?
Neither option is automatically better for managing your debt problems. Whether an IVA or bankruptcy suits you will depend on the amount of debt you owe, your income, your assets, and your employment situation.
Speaking to a licensed Insolvency Practitioner can help you understand which solution fits your situation before you make any decisions. Seeking debt help early gives you the best chance of finding the right path forward.
An IVA may suit you if:
- You have a regular income and enough money to live on after making contributions to your IVA
- You owe at least £7,000 to two or more creditors
- You own your home and want to protect it
- You have assets you want to keep
- Your employment would be affected by bankruptcy
- You want a structured arrangement with a fixed end date
- You want interest and charges frozen on your debts
Bankruptcy may suit you if:
- You have little or no disposable income once your outgoings are accounted for
- You have few assets of significant value
- You want to be debt-free within 12 months
- Your level of debt is unmanageable and unlikely to improve
- You don’t own property
- Your employment won’t be affected by bankruptcy
The fact that bankruptcy is quicker isn’t necessarily a reason to choose it over an IVA. For many people, the protection an IVA offers, especially for homeowners or those in certain professions, makes it the more suitable option. Whatever your situation, getting professional help early gives you the best chance of finding the right solution.
